“In the age of social media, it’s easier for anybody to produce new information or news,” Mohamed Al Guindy, assistant professor of finance at Carleton University’s Sprott School of Business, tells Yahoo Canada Finance.

“Even though the ability to produce information both financial and otherwise is often quite good, sometimes that comes with a price.”

It looks at articles running on websites like Seeking Alpha and Motley Fool that the U.S. Securities and Exchange Commission (SEC) determined were intended to inflate the stock prices of specific companies and were written by writers who were paid by public relations firms, as well as articles that were determined by a linguistic algorithm to be likely “fake.”

The paper concludes that small and mid-cap stocks are the ones most affected by the growing fake news problem.

“Smaller companies are probably going to be more susceptible to promotional articles,” Niessner says. “There’s less information [and] transparency, so those companies are going to be more affected.”

A global phenomenon

The fake news problem is also affecting investors worldwide, including here at home, Al Guindy says.

“Nobody is immune to this,” he says. “Anybody is likely to be affected by this as anyone else.”

And regulators have been working hard to catch up to the new wave of investment scams.

In Canada, the Canadian Securities Administrators told Yahoo Canada Finance that under securities law it’s illegal to issue false information to influence the markets.

In the U.S., the SEC has already taken action against a number of individuals, including Canadians, for using websites and social media for stock market scams.

The other ‘fake news’ problem

However for some, fake news isn’t just limited to deliberately spreading misinformation, but it’s also when legitimate news outlets get things wrong — like the slump Apple’s stock saw when reports said its iPhone X was underperforming and its rebound when it was later revealed to be the top-selling iPhone.

Niessner says she isn’t sure which take on fake news is ultimately more damaging, but that in both cases people are becoming more skeptical of all news they come across.

“It might not be a bad thing if people are a little bit more critical of what they’re reading,” she says, “that’s one side effect of people realizing that there’s potential news that’s not true.”

Ways to protect yourself

Unfortunately, Niessner says it’s hard to avoid some of the pitfalls around fake news, especially since successful investors often need to act quickly on new information to maximize their profits.

“If you’re trading on news that’s brand new, that just came out, you might make a lot of money,” she says. “But you just have to be aware that usually when there are more returns, there are more risks.”

And by taking the time to make sure that the information is accurate, you could miss the boat for making a bigger return.

“When you could be verifying some news, then it might not be relevant by the time you decide that it’s true news and you’d like to trade on it,” she says.

They say investors should be on the lookout on social media for accounts that have a limited number of posts, pressure people to immediately buy or sell, offer unsolicited investment advice or are unverified.

Niessner says fake news it isn’t a particularly new problem, but is an increasingly bigger one. She is, however, hopeful something could be done to tame it.

“It has been increasing over time. The question is, is it going to keep increasing or whether it will stabilize on some lower level,” she says.

“I think it will depend a lot on whether we’re able to find an algorithm that we can kind of weed out some of the fake news to prevent them from being published, and that’s really hard to forecast.”